cherry picking

In insurance, "cherry-picking" refers to the practice where insurers selectively choose to cover only those individuals who are least likely to file claims. This strategy aims to minimize the insurer's costs and maximize profits by avoiding high-risk policyholders, such as those with pre-existing health conditions.1

This practice is a response to "adverse selection," a situation where individuals with more information about their risks (like knowing they'll need significant medical care) are more likely to purchase insurance. If insurers set premiums based on average risk, they could lose money. To counter this, they might "cherry-pick" healthier clients. However, this can lead to a "death spiral" where only high-risk individuals remain in the insurance pool, driving up costs further. Governments sometimes intervene to prevent cherry-picking by requiring insurers to cover all applicants at a uniform cost, regardless of individual risk factors.1